Photo: Reuben Whitehouse on Flickr
The first estimate of fourth quarter U.S. GDP growth comes out today, and investors are aiming high.We’ll be covering it LIVE at 8:30 AM ET.
Consensus is that the economy grew at an annualized rate of 3.0%, but analysts are stabbing at estimates anywhere between 2.5% and 4.0%.
The country saw slow third quarter growth—just 1.8%—disappointing after initial estimates showed it grew at a pace of 2.5%. A consensus or better-than-expected number tomorrow would confirm that the economy is indeed growing and the recovery is gaining ground, while slower growth could lead investors to question some recent positive assessments of the economy.
But beyond the number itself, here are the two primary elements of GDP we’ll be scrutinizing tomorrow:
- The big hole in Q3 GDP growth was personal consumption expenditures (PCE), a datapoint which was the reason GDP growth was repeatedly revised down. Investors were repeatedly surprised during the fourth quarter by consumer spending and retail sales indicators, enough to credit the consumer for driving the pace of recovery. But if Q4 measures of PCE disappoint, investors might have to seriously reassess their predictions.
- Gross private direct investment also subsided in Q3. A better reading in Q4 would suggest that credit conditions are loosening and businesses will be able to access funds necessary to grow. A large part of that was non-residential fixed investment—a trend that sped up even as the recovery stalled over the summer—and that’s something that will be important moving forward, particularly since the housing market still faces hurdles until it returns to health.
Just to get an idea for the disparity of predictions tomorrow: Citi is predicting 2.7% growth, Nomura 3.4%, and Credit Suisse comes in almost at consensus with 3.1%.